Wildfire risk management: What California homeowners can do

The recent California wildfires now account for five of the six largest fires in the state’s history and have charred more than 3.7 million acres, twice the previous record set in 2018. Over the past few years, the frequency and severity of these fires have exponentially increased, essentially making wildfires a year-round threat.

Insurers cut back on coverage, leaving homeowners scrambling

In response to record-breaking wildfires, insurance companies are reducing their risk exposure by dropping homeowners coverage in fire-prone areas. The evolving insurance marketplace has had an adverse domino effect on the real estate market and mortgage industry. Without proof of homeowners insurance, banks cannot issue mortgages, making homes more difficult to buy or sell. Even if a home is insurable, many are walking away from them because of the high premium and/or high wildfire deductible.

The state steps in

The hesitancy of carriers to continue insuring homes in these areas has prompted action from California Governor Gavin Newsom and California Insurance Commissioner Ricardo Lara. Of note, in December 2019, Senate Bill 824 became law and created a one-year grace period for policy cancellations following a wildfire. The law states:

“An insurer shall not cancel or refuse to renew a policy of residential property insurance for a property located in any ZIP Code within or adjacent to the fire perimeter for one year after the declaration of a state of emergency as defined in Section 8558 of the Government Code, based solely on the fact that the insured structure is located in an area in which a wildfire has occurred. This prohibition applies to all policies of residential property insurance in effect at the time of the declared emergency.”

While existing law prevents non-renewals for homeowners suffering a total loss, the new law established protection for those living adjacent to a declared wildfire. Additionally, in the past few weeks, a number of new laws have been passed that do everything from help wildfire victims recover faster to establish best practices for jurisdictions seeking to manage wildfire risk in their area.

Insurers ordered to cover property losses

On October 2, 2020, Commissioner Lara urged insurance companies to cover wildfire property losses without requiring a home inventory.

“Wildfire survivors who are still sifting through the ruins of their home should not have to face an exhaustive inventory in order to start the recovery process,” said Insurance Commissioner Ricardo Lara. “That is why I am asking insurance companies to do their part for their policyholders by providing coverage without the burdensome requirement of a detailed home inventory in order to have their claims paid.”

On October 19, 2020, Commissioner Lara will hold a public hearing to initiate a series of regulatory actions that will protect residents from the increasing risk of wildfire. The public is invited to attend and participate. The Commissioner is seeking to stabilize the insurance market while protecting lives and homes, reduce wildfire losses, and increase transparency for consumers. He said he is prepared to use his authority under California law and Proposition 103 to protect consumers and the future of a sustainable insurance market.

Commissioner Lara also said he will take the following actions:

• Develop home-hardening standards that are consistent - based on fire science and applicable to all insurance companies. Home-hardening is taking steps to improve the chance of a home withstanding a wildfire.
• Give transparency to consumers about their wildfire risk score and what they can do to reduce it. Insurance companies use wildfire risk scores to determine which homes they will write and at what premium.
• Create insurance incentives recognizing home-hardening, mitigation of properties, and community mitigation actions; and require that insurance companies seek adequate and justifiable rates to protect the solvency of the market.

Homeowners can take action now

Marsh & McLennan Agency (MMA) recommends that California homeowners take the following steps:

• Conduct a comprehensive policy review now. Verify the policy has full replacement cost and confirm the dwelling limit is in line with updated construction costs.
• Understand the policy exclusions and minimize gaps in coverage.
• Develop a detailed plan of action for when an evacuation is ordered.
• Consider new, in-home technology that can protect the home.
• Determine if the insurance carrier provides for a fire protection team to respond to an on-site incident. Note: there is no guarantee that they will be able to gain entrance to the home. The carrier has a limited number of response trucks and they may not be able to access the neighborhood due to road closures set up by the fire department.
• Create or expand the defensible space around a home and other structures by:
  • Removing combustible plants and trees a minimum of 200 feet.
  • Ensuring that all landscaped areas are properly covered by an irrigation system.
  • Thinning out trees before winds occur.
  • Integrating hardscape into the yard. Hardscape includes rocks, gravel and crushed stones.
• Water vegetation regularly to keep moisture levels high.
• Keep flammable vegetation away from propane tanks and solar panels.
• Position woodpiles a minimum of 30 feet from any structures and cover with a heavy canvas tarp.
• Consider replacing wooden decks with decks made of fire-resistant material.
• Consider replacing a wood shake or wood shingle roof with fire-resistant material such as tile, composition, or metal.
• Enclose open roof eaves with sheathing or fascia boards.
• Consider replacing windows with fire resistant glass and steel window frames. Fire shades are also an option. Designed to deploy either automatically or remotely, these shades drop down over windows to block heat of up to 2,000˚ F.
• Install a spark arrestor to an uncapped chimney.

MMA is here to help

MMA has a team of professionals that can address all of a homeowner’s property and casualty needs. To learn more, reach out to your MMA representative.